In 2020, the automobile wholesale industry experienced a decrease in revenue of nearly 21.4%. This decrease resulted primarily from downstream markets. Automobile dealerships, the industry’s main downstream market, were forced to temporarily close their doors at the start of the COVID-19 pandemic. Since this closure, automobile wholesaling has struggled to catch up. Severe inventory shortages caused serious delays. Customer demand is still there, but inventory is not. Even with these hurdles, automobile wholesalers managed to increase revenue by 8.45% in 2021 in comparison to the 21.39% decrease in 2020. These economic conditions and more caused an increase in transactions of automobile wholesale businesses. If you plan on buying or selling an automobile wholesale business, understanding the fair market value of an automobile wholesaler is important. In this article, we discuss several key value drivers for automobile wholesalers.
It is important to understand these value drivers as they will impact your business in every way. Whether buying, selling, or growing your business, consider what drives your business’s value. Focusing on value drivers will increase the value of your automobile wholesale business. Peak Business Valuation, business appraiser, considers value drivers when determining the fair market value of an automobile wholesale business. For more information, contact us below for a free consultation.
Value Drivers for Automobile Wholesale
In the following paragraphs, we discuss a few of the important key value drivers for automobile wholesalers. For more information see Valuing an Automobile Wholesale Business as well as Valuation Multiples for Automobile Wholesaling and How to Value an Automobile Wholesale Business. To better understand the value of your automobile wholesale business, obtain a business valuation from Peak Business Valuation, business appraiser.
Economic Conditions
First, the economy plays a significant role in the success and value of an automobile wholesale business. As we have seen over the past year, car prices have significantly increased. This is due to chip shortages and shortages in other materials across the world. Problems such as this can substantially impact an automobile wholesale business. To prepare for such conditions, always consider the ups and downs of the market. While you cannot change the economic conditions, it is important to prepare. When valuing an automobile wholesale business, a business appraiser will look at the current and recent economic conditions. They will assess how your business responds (responded) to them.
Consumer Interests
Consumer interests are ultimately most important. If consumers don’t desire a product it doesn’t sell. However, in the current market supplies are in such short supply, limiting consumers’ choices. However, this is not a sustainable market. In the end, consumers drive demand. To be successful, listen to consumer wants and respond accordingly.
Automobile wholesalers do not have face-to-face interactions with consumers. However, they do interact with the dealerships. Dealerships have all the knowledge and expertise in this department. It is wise to listen and change to the wants and needs of consumers. Being attentive to consumer interests will drive sales. Increasing sales/revenue is key to maximizing the value of an automobile wholesale business.
Technology
Technology is an important piece of a wholesale business. There are several steps to get products from one place to the next. A wholesaler is a middle man between the manufacturer and the consumer, or in this case, the dealership. Having updated technology to track this progress and stay up-to-date is essential. Not only will technology help in that department, but it will also help in the shipping and receiving of products.
Technology has shifted our world from one of manual labor to automated systems and processes. In some cases, technology can do things faster and more proficiently than most humans. Ultimately, the more product you can supply to your dealerships, the higher your profits. Technology is a great way to track this and help to maximize profit. When valuing an automobile wholesale business, the business appraiser will analyze your profit margins and operating margins. They will compare your wholesale business to similar automobile wholesalers.
Product Pricing
Next, as supplies continue to be in short supply, prices continue increasing. In 2021, inflation increased at an all-time high of 7%. Not only that, but the consumer price index for used cars and trucks increased 40.5% in the last year. These prices may be “realistic” now, but they are not sustainable. Consumers will have to look to alternative options like public transportation if prices continue to skyrocket. As an automobile wholesaler, it is important to provide the best prices to your dealerships while still maintaining a profit. Competitive pricing is key to turning inventory quickly. A business appraiser will look at inventory turnover when determining a fair market value.
Recurring Revenue
Recurring revenue is the main source of income for an automobile wholesaler. To be successful, an automobile wholesaler needs to be the primary supplier to dealerships. This is a competitive market and can be hard to do if you are just entering this industry. Focus on building solid relationships. If you maintain good relationships, recurring revenue will follow. As a business appraiser values your automobile wholesale business they will look at your revenue streams. The most valuable revenue streams are recurring.
Summary
In conclusion, there are several key value drivers for automobile wholesalers. A business appraiser will consider these when valuing an automobile wholesale business. The automobile wholesale industry is very competitive. Whether buying, selling, or trying to maximize your business, it is beneficial to understand the value of your automobile wholesale business. Receiving a business valuation will identify the fair market value and how to increase it.
Peak Business Valuation, business appraiser, values businesses across the country, including automobile wholesalers. We are happy to answer any questions you might have about the value of an automobile wholesale business. Get started by scheduling your free consultation below.
